Economic Research: High E-Cig Taxes Lead to Increased Smoking Rates

Analysing the situation in Minnesota, where a harsh 95% tax has been imposed on vaping products, researchers from the National Bureau Of Economic Research (NBER) have found that the tax has increased adult smoking and reduced smoking cessation across the state.

Diane Caruana

February 13, 2020

Studies keep indicating the effectivity of vaping products and electronic cigarettes as smoking cessation tools. Despite this, many entities misunderstand the products and insist on regulating them in the same manner as their deadly counterparts.

On the other hand, not only does Minnesota “boast” one of the harshest e-cig taxes across the US, but it was also the first state to impose a tax on e-cigarettes by extending the definition of tobacco products to include e-cigarettes. This heavy 95% tax on the wholesale price, naturally proves to be quite the deterrent for people interested in using the products.

“Our results suggest that in the sample period about 32,400 additional adult smokers would have quit smoking in Minnesota in the absence of the tax.”

Analyzing data from the Current Population Survey Tobacco Use Supplements from 1992 to 2015, in conjunction with a synthetic control difference-in-differences approach, the NBER researchers sought to determine how this tax affects smoking cessation rates among adult smokers.

Higher taxes directly linked to higher smoking rates

The compiled estimates suggested that in line with arguments by countless public health experts, the high tax was directly linked to higher smoking rates and lower smoking cessation rates. “..the e-cigarette tax increased adult smoking and reduced smoking cessation in Minnesota, relative to the control group, and imply a cross elasticity of current smoking participation with respect to e-cigarette prices of 0.13.”

“..the e-cigarette tax increased adult smoking and reduced smoking cessation in Minnesota.”John Newton, Public Health England

“Our results suggest that in the sample period about 32,400 additional adult smokers would have quit smoking in Minnesota in the absence of the tax. If this tax were imposed on a national level about 1.8 million smokers would be deterred from quitting in a ten year period,” revealed the researchers.

Benefits vs Consequences of Raising Taxes

The paper authors concluded that imposing a tax on the devices should be given more thoughts and benefits vs consequences of should be taken into consideration. “The taxation of e-cigarettes at the same rate as cigarettes could deter more than 2.75 million smokers nationally from quitting in the same period. The public health benefits of not taxing e-cigarettes, however, must be weighed against effects of this decision on efforts to reduce vaping by youth.”